What Kind of Stock Market Purge Is This?

Down markets, like up markets, are both dazzling and delightful. The shock and awe of near back-to-back 1,000 point Dow Jones Industrial Average (DJIA) free-falls is indeed spectacular. There are many reasons to revel in it. Today we shall share a few. To begin, losing money in a multi-day stock market dump is no fun at all. We’d rather get our teeth drilled by a dentist. Still, a rapid selloff has many positive qualities.

Memorable moments from the annals of dentistry [PT]

For example, the days following a market correction are full of restoration and redemption. Like the prayer of Saint Francis of Assisi, Tuesday’s 567 point DJIA bounce brought hope where there was despair, light where there was darkness, and joy where there was sadness. President Trump even acknowledged that his powers over the stock market are less than omnipotent.

From a practical standpoint, a market correction clarifies that we live in a world that is exacting and just, as opposed to a fabricated fantasy. A stock market purge demonstrates that the central planners haven’t entirely broken the markets just yet. Markets still go both up and down. This important detail is always forgotten at the worst possible time.

The stock market purge also clarifies that Fed actions provoke reactions. The Fed’s rate raising and quantitative tightening efforts are having an effect. After pumping stock and credit markets up for the last decade they are now, by design, deflating them. What a delicate and unnecessary game these central bankers play.

The tree month t-bill yield and total assets held by the Federal Reserve system – moving in opposite directions. Amazingly, many market participants seem to believe that when these data change direction, the stock market will remain unaffected. That is probably wishful thinking. [PT]